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    I did AS maths last year, doing A-level business this year and never understood a single word of what they asked you.
    Hope someone can help you
    All the best
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    did barclays send u any biscuits?
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    (Original post by natninja)
    I got rejected from my interview, they said it was because I didn't know how to value an equity indexed auto-callable credit linked note with an embedded fixed to floating swaption I'm crying inside. Plz can someone teach me?

    gr8wizard10 Princepieman
    what desk did you apply for? this is quite complex if you don't study finance/financial mathematics or haven't done a rigorous derivatives module.

    this is a structured fixed income product so uses the geometric progression series as a fundamental feature. however given the linkage of other structured prodcuts you'd calc seperately and add each value at the end. so what you're essentially valuing is the equity indexed bond but recreating the yield curve through stripping existing bonds to dummy a series of zero-coupon bonds which you can then use in a sum equation of [(Cf/(1+yi)^n) and your yi is just the approximated discount at each interval. you use bionomial trees (if done by hand) to ascertain a value for your callable product where you input various interest rate trends and then find values for your credit product at each stage and then weight them according to probability of likelihood, these trees will also give you an answer to when these products are in-the-money for when they are liable to be called (assume as soon as it's profitable to do so they will be called (hence auto-callable).the swaption combines an option and a swap, so again we can seperate this into valuing them seperately. you'd need your index price vol. to value the option, where you can plug the figures into the black scholes merton model. the swap again bases itself on the binomial trees again to include pay-off profiles depenent on when the option is in the money based on interest rate paths, and you can dummy the likelihoods again with the previous tree but instead of calculating bond price you have a model for the price of the swap dependent on rate differentials.

    sum all these independent values at the end and that will give you a theoritical price for that product. in hindsight if you get posed with a problem like this just remember to split the various products and value them independetly and then just group them at the end. because with structured products they're just a combination of different assets to gain a certain market position and payoff profile to suit different trading strategies.

    that being said, i think this is a harsh question for someone who doesn't have experience with derivs or doesn't study finance.

    (Original post by lee1999wright)
    I did AS maths last year, doing A-level business this year and never understood a single word of what they asked you.
    Hope someone can help you
    All the best
    this is degree level finance.
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    (Original post by gr8wizard10)
    what desk did you apply for? this is quite complex if you don't study finance/financial mathematics or haven't done a rigorous derivatives module.

    this is a structured fixed income product so uses the geometric progression series as a fundamental feature. however given the linkage of other structured prodcuts you'd calc seperately and add each value at the end. so what you're essentially valuing is the equity indexed bond but recreating the yield curve through stripping existing bonds to dummy a series of zero-coupon bonds which you can then use in a sum equation of [(Cf/(1+yi)^n) and your yi is just the approximated discount at each interval. you use bionomial trees (if done by hand) to ascertain a value for your callable product where you input various interest rate trends and then find values for your credit product at each stage and then weight them according to probability of likelihood, these trees will also give you an answer to when these products are in-the-money for when they are liable to be called (assume as soon as it's profitable to do so they will be called (hence auto-callable).the swaption combines an option and a swap, so again we can seperate this into valuing them seperately. you'd need your index price vol. to value the option, where you can plug the figures into the black scholes merton model. the swap again bases itself on the binomial trees again to include pay-off profiles depenent on when the option is in the money based on interest rate paths, and you can dummy the likelihoods again with the previous tree but instead of calculating bond price you have a model for the price of the swap dependent on rate differentials.

    sum all these independent values at the end and that will give you a theoritical price for that product. in hindsight if you get posed with a problem like this just remember to split the various products and value them independetly and then just group them at the end. because with structured products they're just a combination of different assets to gain a certain market position and payoff profile to suit different trading strategies.

    that being said, i think this is a harsh question for someone who doesn't have experience with derivs or doesn't study finance.



    this is degree level finance.
    Bro I think the OP was joking, at least I hope so
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    (Original post by natninja)
    OP was definitely joking - I had a long day - the internal designation of my team is Financial Instruments, Treasury and Securitisation advisory (though I'm doing audit work atm, my client at the moment has a balance sheet pretty much entirely of structured products.) Not a bad explanation of the valuation though.

    (Also for the record an auto-callable feature is a feature where if a certain condition is met on a set observation date the issuer has an obligation to buy back for some predetermined payout that isn't necessarily profitable though usually should be, it's usually a feature found on capital guaranteed products and the autocall can be on literally anything. One other thing, also for the record, credit linked notes are a synthetic derivative that mimic the credit risk behaviour of a securitised bond product through credit default swaps so the LGD/EAD is different to a bond as you would lose all the income you had accrued to date in the case of default and then make payouts as if you were the bond issuer)
    It's not exactly a funny joke
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    Bet that makes you glad you responded gr8wizard.... You got a lesson as well....
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    (Original post by natninja)
    I got rejected from my interview, they said it was because I didn't know how to value an equity indexed auto-callable credit linked note with an embedded fixed to floating swaption I'm crying inside. Plz can someone teach me?

    gr8wizard10 Princepieman
    bro it's simple man.

    if i'm eating a a big mac and my man's got a signature burger, i just hit him up like: 'bruv, i'm a bit waved inni. can i swap dat signature burger for this big mac?'.

    obviously my man's bare stiff, he doesn't drink or anything so he feels a bit iffy about the situation. so wat do I do? i scribble some fire lyrics on a note and get a random G in McDonald's to confirm the lyrics are indeed fire.

    so with my fire lyrics I start spitting bare rhymes in mcDs drawing attention to myself (and ofc the brotha i'm tryna swap my burger with). the brotha gets a bit perplexed and hands me the signature burger. takes my big mac and runs. next thing I see him (when I'm sober) he's getting waved on some voddy - little did I know he knicked some of my ps to afford that voddy as well (during the swap).

    there you go inni. auto-callable, indexed, credit linked note with an embedded fixed to floating swap.

    good luck for ur next interview.

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    (Original post by natninja)
    OP was definitely joking - I had a long day - the internal designation of my team is Financial Instruments, Treasury and Securitisation advisory (though I'm doing audit work atm, my client at the moment has a balance sheet pretty much entirely of structured products.) Not a bad explanation of the valuation though.

    (Also for the record an auto-callable feature is a feature where if a certain condition is met on a set observation date the issuer has an obligation to buy back for some predetermined payout that isn't necessarily profitable though usually should be, it's usually a feature found on capital guaranteed products and the autocall can be on literally anything. One other thing, also for the record, credit linked notes are a synthetic derivative that mimic the credit risk behaviour of a securitised bond product through credit default swaps so the LGD/EAD is different to a bond as you would lose all the income you had accrued to date in the case of default and then make payouts as if you were the bond issuer)
    (Original post by gr8wizard10)
    what desk did you apply for? this is quite complex if you don't study finance/financial mathematics or haven't done a rigorous derivatives module.

    this is a structured fixed income product so uses the geometric progression series as a fundamental feature. however given the linkage of other structured prodcuts you'd calc seperately and add each value at the end. so what you're essentially valuing is the equity indexed bond but recreating the yield curve through stripping existing bonds to dummy a series of zero-coupon bonds which you can then use in a sum equation of [(Cf/(1+yi)^n) and your yi is just the approximated discount at each interval. you use bionomial trees (if done by hand) to ascertain a value for your callable product where you input various interest rate trends and then find values for your credit product at each stage and then weight them according to probability of likelihood, these trees will also give you an answer to when these products are in-the-money for when they are liable to be called (assume as soon as it's profitable to do so they will be called (hence auto-callable).the swaption combines an option and a swap, so again we can seperate this into valuing them seperately. you'd need your index price vol. to value the option, where you can plug the figures into the black scholes merton model. the swap again bases itself on the binomial trees again to include pay-off profiles depenent on when the option is in the money based on interest rate paths, and you can dummy the likelihoods again with the previous tree but instead of calculating bond price you have a model for the price of the swap dependent on rate differentials.

    sum all these independent values at the end and that will give you a theoritical price for that product. in hindsight if you get posed with a problem like this just remember to split the various products and value them independetly and then just group them at the end. because with structured products they're just a combination of different assets to gain a certain market position and payoff profile to suit different trading strategies.

    that being said, i think this is a harsh question for someone who doesn't have experience with derivs or doesn't study finance.



    this is degree level finance.
    LOL that's literally the most boring thing I've ever read, I'm lucky I'm not studying finance
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    (Original post by Princepieman)
    bro it's simple man.

    if i'm eating a a big mac and my man's got a signature burger, i just hit him up like: 'bruv, i'm a bit waved inni. can i swap dat signature burger for this big mac?'.

    obviously my man's bare stiff, he doesn't drink or anything so he feels a bit iffy about the situation. so wat do I do? i scribble some fire lyrics on a note and get a random G in McDonald's to confirm the lyrics are indeed fire.

    so with my fire lyrics I start spitting bare rhymes in mcDs drawing attention to myself (and ofc the brotha i'm tryna swap my burger with). the brotha gets a bit perplexed and hands me the signature burger. takes my big mac and runs. next thing I see him (when I'm sober) he's getting waved on some voddy - little did I know he knicked some of my ps to afford that voddy as well (during the swap).

    there you go inni. auto-callable, indexed, credit linked note with an embedded fixed to floating swap.

    good luck for ur next interview.

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    (Original post by natninja)
    OP was definitely joking - I had a long day - the internal designation of my team is Financial Instruments, Treasury and Securitisation advisory (though I'm doing audit work atm, my client at the moment has a balance sheet pretty much entirely of structured products.) Not a bad explanation of the valuation though.

    (Also for the record an auto-callable feature is a feature where if a certain condition is met on a set observation date the issuer has an obligation to buy back for some predetermined payout that isn't necessarily profitable though usually should be, it's usually a feature found on capital guaranteed products and the autocall can be on literally anything. One other thing, also for the record, credit linked notes are a synthetic derivative that mimic the credit risk behaviour of a securitised bond product through credit default swaps so the LGD/EAD is different to a bond as you would lose all the income you had accrued to date in the case of default and then make payouts as if you were the bond issuer)
    on your point on auto-callable features, i was discussing their dependence on those binomial tree paths where assumptions are they are only called before maturity dependent on valuation. when doing a theoritical valuation (atleast to my understanding), you will almost always assume they are called where monetarily profitable for the issuer (infact i don't recall a valuation model that would state otherwise if not pre-built into the assumptions), although in practice perhaps not.. but i can't think of what other reason their could be.

    regarding your team, are your clients all financial institutions? and do people move to structuring/sell-side derivs trading at all? i say keep it simple and go for ibd.. some addition/subtraction here and there, get a company value, google a few nice points, present to clients and call it a day.
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    (Original post by biglad2k16)
    LOL that's literally the most boring thing I've ever read, I'm lucky I'm not studying finance
    derivs can be quite mundane, dependent on how much of a nerd you are. although i think understanding atleast the basics of vanilla deriv products such as fwds/futures/swaps/options can be very helpful in your later career (if you go down the IBD route). for advisory/investments role an understanding of said products can help you in portfolio optimization and risk management. i think however corporate finance/ corporate strategy is quite interesting. both the valuation side of things and the legal/deal process side. corporate governance is also quite informative in understanding shareholder/management incentives and breaks down agency theory into some really interesting dynamics. all in all i think finance is quite good in terms of intrinsic usefulness, idk what else i would've studied that would be anywhere near as beneficial.
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    (Original post by natninja)
    The thing with options models is that the assumption that they are only called dependent on it being profitable for the issuer is that that relies on optionality whereas the call in an auto-callable feature is obligatory - it's often there for risk mitigation purposes by the issuer rather than to make a profit. You sometimes have to build bespoke models based on the contract terms which can be nasty though I think Black-Scholes-Merton would still be appropriate usually.

    Audit clients are all banks and capital markets institutions (prop firms, commodities firms, derivatives firms, wholesale, retail commercial, investment banks etc. everything except asset managers and insurers). Advisory clients are Financial institutions and corporates, we compete with some of the big banks for corporate treasury advisory work. A lot of the work that we do is due diligence and model assurance. I'm not sure about people leaving to go into structuring/sell-side derivs - it's more common for people to move the other way, there are a couple of senior managers who are former MDs at tier 1 and BB banks. Tbh I'm not planning on making a move until I finish my ACA - seems pointless to start it otherwise and I've put a lot of work into it. We actually advise some major banks on how to structure and value structured credit products that they've dreamt up - I think the draw for the ex-bankers is that they've already made bank and want to move into something more technical with fewer hours and better job security or that they got fed up of the amount of regulation that traders are faced with.
    sounds interesting. few questions from my own curiosity.. how many people operate in your dept? regarding the advisory side of things, do you interact with models with the intention of pricing proudcts from scratch or moreso check whether or not they operate correctly to help push them through to execution for regulatory purposes? + what type of backgrounds do people generally have in your division (assuming they come straight from grad? can't imagine too many openings for grad students, sounds like it requires a specalist knowledge. also where would you plan to make a move to, hypothetically?
 
 
 
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